ESMA opines about AIFMD/UCITS Directive segregation and treatment of CSDs

The European Securities and Markets Authority (ESMA) has issued an opinion about asset segregation. Their conclusion, following consultation, was that there cannot be a one size fits all solution so ESMA decided not to adopt any of the segregation method options previously presented but rather to recommend changes to the text of AIFMD and the UCITS Directive. Among the technical discussion, ESMA opines that, among other things:

(i) AIFMD’s segregation provisions should be changed to mirror the more precise provisions in the UCITS Directive;

(ii) the UCITS and AIFMD frameworks should both be amended to prescribe the same minimum requirements at the level of the delegate, including (1) a minimum of 3 different segregated accounts per depositary should be required at the level of the delegate (for own assets of the delegate, own assets of depositary, and assets of depositary’s clients); and (2) the use of omnibus accounts (i.e. those comprising assets of different clients of depositaries, but excluding own assets of the delegate or of the depositary) should be subject to specific conditions; and

(iii) at the level of the sub-delegate, omnibus accounts for all of the delegate’s client assets should be permitted, but with respect to the due diligence and process related provisions the delegate would

have to fulfil the same requirements in relation to the sub-delegate as the depositary in relation to the delegate.

With respect to CSDs, a distinction is drawn in the opinion between issuer CSDs and investors CSDs (which are in competition with global custodians), with ESMA requiring the latter to be treated as a delegate but not the former.